‘IR35 tax changes contribute to economic inactivity’

As many as one in 10 contractors are choosing not to work due to employers’ fears over IR35 rules, according to a new IPSE survey.



One in 10 freelancers are currently out of work due to the impact of controversial reforms to IR35 tax legislation, according to new research.

A survey of more than 1,300 contractors in highly skilled roles by IPSE (the Association of Independent Professionals and the Self-Employed) found that 21% are not currently working, with half of them attributing this to the impact of reforms to IR35 tax rules.

55% of contractors said they had rejected an offer of work in the past 12 months due to it being deemed ‘inside IR35’ by the client. And 24% said they intend to seek contracts overseas this year to escape the rules.

The survey, run annually by IPSE , tracks the impact of the IR35 changes – known as the ‘off-payroll working’ rules – on contractors. The changes were rolled out first to the public sector and then to the private sector in April 2021. They force employers to make a decision on the often complex issue of employment status and have led to many companies relying on CEST [Check Employment Status for Tax – HMRC’s tool for defining tax status whose accuracy has been questioned], adopting blanket bans on contractors or working with umbrella companies through fear of risk.

Andy Chamberlain, IPSE’s Policy Director, said: “Our findings show that contractors want to prioritise clients who are willing to hire them on a freelance basis, and happy to walk away from those who won’t – even if this means not working at all.

“The blame for this impasse doesn’t rest with clients – it rests with the culture of fear that is propagated by the IR35 rules. Having noted HMRC’s dogged determination to win high profile IR35 battles with TV stars – brushing off successive court defeats in the process – hirers are concluding that working with freelancers risks inviting too much hassle from the taxman.

“This is a damning legacy for a Chancellor who claims to be on the side of business. If he is serious about cutting inactivity and growing the economy, he would get round the table with those who dealing with the real-world impacts of these reforms and urgently address them.”

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